Thursday, February 05, 2009

Somebody Knows What Those Assets Are Worth....

Following up on the obvious fact that there is a way to get an actual valuation for the toxic securities held by financial institutions, commenting on a New York Times article on some of the dubious assets, Rep. Brad Miller writes,
The financial institution [holding the bond] values the bond at 97 cents on the dollar. Standard & Poor’s values the bond at 87 cents at the current default rate, but estimates the bond’s value could go down to 53 cents if the default rate doubles. But someone actually bought one of the bonds recently. The purchase price was 38 cents.

According to the article, financial industry critics “say that the banks’ accounting for those assets cannot be trusted because they have an incentive to use optimistic assumptions.”

“Optimistic”? Whoever paid 38 cents on the dollar for one of those bonds is a giddy optimist. The financial institution’s valuation of 97 cents on the dollar is pretty clearly fraudulent.

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